There have been calls for further changes to APD after the Chancellor George Osborne announced a reform of the tax that will cost the government £985 million over four years.

IAG, the parent of British Airways and Iberia, dismissed the surprise announcement that two of the four bands would be scrapped as ‘window dressing’.

It continued to assert that the tax is damaging to the UK economy and jobs and should be scrapped entirely.

“It still punishes families and costs UK jobs,” the airline said in a statement. “The only long-term solution is to scrap APD in its entirety and allow the aviation and tourism industries to flourish, to the benefit of the wider UK economy.”

The Fair Tax on Flying lobby group welcomed yesterday’s decision but said it wanted to see further future reforms.

A spokesman said: “A Fair Tax on Flying welcomes the government’s reforms to Air Passenger Duty (APD) in this Budget which will see a saving to passengers and businesses travelling long-haul of over £200m annually.

“It is a recognition that for far too long, travellers have been suffering as a result of the excessive levels of APD.”

“The new banding system will help exporters including outbound tourism, it will encourage inbound tourism from long-haul destinations such as India and China and it will remove some of the distortions associated with the current system hurting holidaymakers – such as the premium passengers pay to travel to the Caribbean.”

“Today’s decision is therefore a positive first step. Hopefully the reforms announced today will have such a positive impact that they will encourage the government to undertake further reforms of APD in future.”

The decision to increase Air Passenger Duty in line with inflation will still hamper growth, the boss of travel technology firm Multicom warned.

Managing director John Howell welcomed the decision to reform all long-haul flights so they carry the same lower band B rate that passengers currently pay to fly to the US from next year.

But he described the overall inflation linked rise from April as “bewildering and out of touch” at a time when other countries in Europe are scrapping the tax.

Ireland will drop its equivalent air tax on April 1, leaving the UK as one of only five countries in Europe to levy a departure tax on flights.

Howell said: “The decision to reform long-haul flights banding is a small step in the right direction, but as is so often the case the good news is merely designed to bury the bad news.

“At a time when other countries recognise a tax on flights is counter-productive to economic growth, George Osborne continues to ignore calls to review the UK’s position and instead further increases it.

“This is a bewildering decision that once again demonstrates this government is out of touch when it comes to the impact of APD.

“Further increasing APD will hamper growth and damage both inbound and outbound tourism, thereby putting the UK at a disadvantage to its competitors.

“Despite the evidence that shows that scrapping APD would deliver growth, create 60,000 jobs and pay for itself through increased tax receipts on other goods and services, the Chancellor ignores it and instead increases the burden.”

Thomas Windmuller, senior vice president for airport passenger cargo and security at Iata, told The Telegraph: “APD remains an ugly beast that is a menace to the UK’s competitiveness. It needs a drastic haircut, not a trim to its outer extremities.”